Market tone firm after US Treasury report

Trade of the Day: Asian stocks rally, yuan at highest since July; Europe flat and US futures dip. Quote of the Day: “While the text of the US phase one deal with China has not yet been disclosed, the text of the Treasury report suggests that the US expects China’s currency policy to lean towards CNY appreciation. The Treasury press release stated: “China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability.” Much of the report appeared designed to limit the scope for China and other countries to depreciate their currencies,” said Standard Chartered Bank head of forex research Steve Englander.

Stock of the day: Changsha Broad Homes rose as much as 20.2% after the industrial component company estimated its turnover had risen 150% and profits had surged 200% in 2019. Number of the Day: 21% the margin by which JPMorgan’s quarterly profit surged in the fourth quarter, handily beating analysts’ expectations. Tip of the Day: “We expect lower, but still positive, total returns of around 5% from developed-market equities in 2020, driven essentially by cash returns. We have a neutral stance on global bonds and remain constructive on EM sovereign debt in local currency. We expect total returns to be in the low single digits in fixed income generally this year, except in US high yield, where returns may be negative due to widening spreads and higher default rates,” said Pictet Wealth Management in its outlook for 2020 published on Tuesday.

Asian markets edged higher after US Treasury department removed China’s tag of currency manipulator ahead of the trade deal and further commitments by Beijing to buy various American goods and services to reduce the trade gap between the world’s two largest economies. But they surrendered gains towards the close as investors booked profits ahead of the earnings season on Wall Street. This caution weighed on European stocks and US futures. MSCI Asia-Pacific ex-Japan index rose 0.79%, Japan’s Nikkei 225 index climbed 0.73% and Australia’s S&P/ASX 200 benchmark was 0.85% higher. Hong Kong’s Hang Seng index edged lower on profit-taking and the yuan climbed after the US dropped the currency manipulator label from the Chinese currency. The yuan rose 12% trading as high as 6.87 to a dollar after the move, the strongest since July.

The report from the US Treasury said, “Treasury has determined that China should no longer be designated as a currency manipulator at this time” but added Switzerland to the watchlist of currency manipulators. The Swiss franc strengthened to 0.9669 francs to a dollar as markets bet the central bank would not intervene to limit the currency’s strength.

Meanwhile, China has committed to buy US$200 billion of US goods over two years, a report from the US Trade Representative office said, a report that boosted sentiment ahead of the signing of the Phase one of the US-China trade deal scheduled for Wednesday in Washington. Even as the tone stayed firm ahead of the phase one European markets were wary with the Stoxx Europe 600 Index was up just 0.1% and S&P futures dipped 0.1%.